Topic Outsourcing HR / PEO

Don't Fall For These Tall Tales About Outsourcing Your HR

Don't Fall For These Tall Tales About Outsourcing Your HR

Luckily for your business, tall tales about outsourcing your HR are preventing your competitors from investing in these services. This reluctance due to misinformation creates an opportunity for forward-looking companies like yours to gain on the competition.

According to one study, companies with outsourced HR partners receive an annual return on investment of 27.2%. Those who remain in the dark about the true nature of outsourced HR will leave these savings behind while you effortlessly cut costs.

Below are six of the tall tales that will contribute to your competitive advantage.

Tall Tale #1: Outsourcing HR is Like a Staffing Agency

Many executives assume that outsourced HR partners function similarly to temporary staffing agencies. Staffing agencies assign their workers to a company on a temporary basis. Once the term of employment is up, these workers are reassigned to other clients.

Outsourced HR partners, on the other hand, never supply labor to worksites. Instead, they take work away from HR: answering complex benefits questions, managing workers’ comp claims, dealing with vendors, handling medical plan renewals, supporting HR technologies, and much more.

Tall Tale #2: Outsourcing HR Functions Like Payroll is More Expensive than Doing Them In-House

There are steep costs for companies that decide to keep their HR functions in-house. Expensive technology is required for the integration of company-endorsed software, such as QuickBooks and Excel. The alternative is manual integration, a slow and error-prone process that can eat into employees' productivity. Every hour spent on manual integration has an opportunity cost.

There are also the penalties for failing to comply with federally mandated regulations associated with HR functions, such as the Fair Labor Standards Act (FLSA). A widespread FLSA audit initiative in Austin, Texas revealed that 95% of the targeted businesses were out of compliance with the law. 

Even simple errors, such as misclassifying employees as contractors, can lead to harsh penalties. Such violations can result in heavy charges which could include anywhere from 1.5% to 20% of employee wages paid, 40% to 100% of employee FICA contributions, and up to $1,000 in criminal penalties for each misclassified employee.

Tall Tale #3: Outsourcing HR Means Losing Control of the Business

Some business owners worry that working with an outsourced HR partner will result in a loss of control over vital business operations. In reality, the opposite is true: the services provided by outsourced HR partners enable business owners to focus on their core competencies.

An agreement between the business owner and outsourced HR partner will clearly outline the responsibilities and scope of authority for each party. This gives the business access to the outsourced HR partner’s master health plans as well as their dental, vision, disability, life insurance, 401(k) plans, and other voluntary benefits. The business also gains access to the outsourced HR partner’s workers compensation programs, (where permissible) state unemployment tax rates, and the outsourced HR partner’s professional team. All the while, day-to-day control of the business is left entirely in the hands of the business owner.

Tall Tale #4: Employees Will Not Like Having HR Functions Outsourced

Research indicates that employee engagement and intent to stay is actually higher for clients with outsourced HR partners than non-clients. For example, one survey found that employees working for a company with an outsourced HR partner are more likely to recommend their company as a good place to work by an average of five percentage points.

Tall Tale #5: HR Outsourcing is One Size Fits All

It's true that some 3rd party suppliers require that a client utilize all of their HR functions as one of their terms of service. However, best in class outsourced HR partners can adapt to specific client’s needs and concerns as well as assist company executives in determining which array of services will work best for them. 

For instance, if a company wants to retain the services of a particular insurance broker, then a flexible outsourced HR partner can adjust their usual offering. If a company wants to keep certain non-payroll functions in-house, the outsourced HR partner can also adjust for that as well. 

Tall Tale #6: Outsourcing Only Saves Money from Reduced Personnel Costs

While reduced personnel costs are one advantage of an outsourced HR solution, there are also significant opportunities for revenue growth for their clients. For instance, recent research found that:

  • 37% of cost savings come from spending less on health benefits
  • 9% of saving came from workers’ compensation costs and other external HR expenditures.
  • The growth rate of a company partnered with an outsourced HR partner is 5% higher than comparable companies.

Leveraging an Outsourced HR Partner for Further Growth

Despite these Tall Tales, there is much to gain by exploring the potential of an outsourced HR relationship.  A quality provider will guide you through the evaluation process, so that you can see the exact costs and benefits of a detailed proposal.  If you are like the many right-fit businesses that have adopted an outsourced HR approach, you can gain a competitive edge through cost savings, enhanced productivity, and employee engagement. 

10 Ways to Screw Up Your Business

Jason Randall

Jason Randall

Jason L. Randall is the CEO of The Questco Companies. He regularly speaks on topics related to strategy, growth, and organizational performance.